VWAPY - Volkswagen: Right Vision But Hold Out For Long-Term Gains

2024-05-01 03:13:21 ET

Summary

• The automobile industry is one that is vulnerable to external events and investor sentiment, both of which are highly volatile as of late.
• In the previous year, Volkswagen focused on restructuring and realigning its role in the automobile supply chain.
• The company's financials show healthy progress, but it faces tough competition and lower trading multiples compared to its peers.
• With VWAGY's strong brands, targets to strengthen influence in key regions, focus on pillars of electrification, and programs to optimize operations and manufacturing, it is in a healthy position to maximize gains in an industry with immense electric and autonomous vehicle potential.

Market Environment, Systematic Risks And Investor Sentiment

Be it the ongoing Russia-Ukraine war, uncertain outlook of interest rate cuts in the US, tensions between the EU/US and China, Israel and Hamas conflicts and even OPEC+ production cuts to the end of 2024, many factors of production crucial for making vehicles, on top of investor sentiment on oil and interest rates have become shaky in recent years.

Brent oil prices spiked an average of 19.7% within 2 weeks since the beginning of these events, while the March CPI report showed a series of upside inflation surprises , stalling the Fed's progress against inflation due to resilient household demand but reduced inventory, trade, and government spending leading to slowed economic growth albeit steady consumer demand. This explains the shift in tone towards keeping interest rates maintained. The outlook on interest rates has also taken a turn for the worse, with the general consensus that hikes or zero rate cuts are more probable than three or more cuts in 2024.

Since the beginning of these major events in 2022, nearly all major automobile companies have suffered in their share price returns with the exception of Toyota Motor (NYSE: TM ) and Honda Motor Co., Ltd (NYSE: HMC ) of 21.7% and 17.45% respectively....

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